2018 (8) TMI 1440 - AT - Central Excise

CENVAT Credit - common inputs used in manufacturing activity of dutiable products as well as exempt products - Rule 6 of the CENVAT Credit Rules, 2004 - maintenance of separate records - It is the submission of appellant herein that he has in fact gone a step ahead and had availed CENVAT credit attributable to those inputs which are used for manufacturing of dutiable goods - Held that - If assessee is required to maintain meticulous records of the consumption of materials used for manufacturing of bulk drugs and drug intermediates, we do not find any reason to hold that consumption of inputs for the manufacturing of dutiable goods needs to be done in a different way. It can be seen from the provisions of Rule 6 that the entire emphasis of the said provisions are for non-availment of CENVAT credit attributable to the inputs consumed in the manufacturing of exempted goods, the procedure mentioned in Rule 6(3), envisages one of the ways of maintaining separate accounts for receipt of consumption of inputs for dutiable and exempted goods - the system adopted by the appellant is also resulting in bifurcated availment of credit only in respect of the inputs used in the manufacturing of dutiable goods, which needs to be accepted. Similar/identical issue came up before the Tribunal in the case of IPCA Laboratories Ltd 2015 (10) TMI 2325 - CESTAT NEW DELHI wherein the Bench held that the appellant therein having not taken and foregone the CENVAT credit attributable to the quantum of the input services based upon the turnover of the exempted products cannot be faulted with. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. CENVAT credit availed on common inputs for manufacturing dutiable and exempted goods.
2. Reversal of CENVAT credit on common inputs due to retrospective amendment to Rule 6 of CENVAT Credit Rules, 2004.

Analysis:
1. Issue 1 - CENVAT credit availed on common inputs for manufacturing dutiable and exempted goods:
The appellant, engaged in manufacturing bulk drugs and drug intermediates, availed CENVAT credit on common inputs based on actual consumption for dutiable products. The authorities alleged non-maintenance of separate records for inputs used in dutiable and exempted goods. The appellant contended that they maintained batch records to track consumption for dutiable products. The lower authorities imposed penalties, which the appellant challenged. The Tribunal found the appellant's method of correlating input consumption with manufacturing and clearances of dutiable products acceptable. The appellant's compliance with Drugs and Cosmetics Act for maintaining consumption records was noted. The Tribunal emphasized Rule 6's focus on non-availment of credit for exempted goods. Precedents like IPCA Laboratories Ltd and Gland Pharma Ltd supported the appellant's approach. The Tribunal held the impugned order unsustainable and allowed the appeal.

2. Issue 2 - Reversal of CENVAT credit on common inputs due to retrospective amendment to Rule 6:
In Appeal No.E/941/2012, the appellant sought reversal of CENVAT credit on common inputs following a retrospective amendment to Rule 6. The appellant's counsel argued that the appellant complied with Rule 6(2) and 6(3) by availing credit only for dutiable goods and reversing credit for exempted goods. The Departmental Representative contended that the appellant did not maintain separate records for dutiable and exempted goods' inputs. The Tribunal found the appellant's method scientific and compliant with Rule 6. Citing the case of Foods Fats and Fertilizers Ltd, the Tribunal dismissed Appeal No.E/941/2012 as infructuous, as the decision in Appeal No.E/2253/2010 rendered it academic. The appeals were disposed of accordingly.

In conclusion, the Tribunal upheld the appellant's method of availing CENVAT credit on common inputs for dutiable goods, emphasizing compliance with record-keeping requirements and the non-availment of credit for exempted goods as per Rule 6. The retrospective amendment to Rule 6 did not affect the appellant's approach, leading to the setting aside of the impugned order and dismissal of the second appeal as infructuous.